Final EIM Report - ER GROUP Assessment PDF

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ER GROUP Assessment ...

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Nestle Confectionary Enterprise Innovation and Markets Autumn 2019

Assessment 2: EIM Report

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Contents 1. Executive Summary ………………………………………………..page 4 2. Industry’s innovation Analysis ……………………………………..page 4 3. Marketing Analysis …………………………………………………page 5 4. Microeconomics Analysis …………………………………………..page 6 5. Problem identification ………………………………………………page 8 6. The Innovative Idea ………………………………………………...page 9 7. Marketing Mix: The Nestle Choca-Block………………………...page 10 8. Conclusion ………………………………………………...............page 12 9. References………………………………………………………....page 12 9. Appendix I…………………………………………………………..page 15 9. Appendix II ……………………………………………………..….page 16 9. Appendix III ………………………………………………………..page 17 9. Appendix IX………………………………………………………...page 18 9. Assigning Team Tasks………………………………………...….page 19 9. Register of Attendance……………………………………………page 20

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EXECUTIVE SUMMARY

We are a team of consulting entrepreneurs hired to examine, develop and launch a new and innovative product for Nestle in the Australian marketplace. This report will: 1- Critically evaluate any two current innovations within the Australian Chocolate and Confectionary Manufacturing industry. 2- Critically analyse current marketing activities of Nestle and its two main competitors in the Australian marketplace. 3- Critically analyse current microeconomic conditions facing Nestle its two main competitors in the Australian marketplace. 4- Link the team's research analysis in steps '1-3' to identify and explain one a problem facing Nestle in the Australian marketplace. 5- Apply creativity to transform the problem facing Nestle to an innovation for a new product. 6- Develop a marketing mix strategy to launch the new product in the Australian marketplace. INDUSTRY INNOVATION ANALYSIS

Nestle is a major food and beverage industry that is ranked 202 out of 2000 companies in Australia and is transforming rapidly. Nestle’s success is founded over 150 years of experience in anticipating consumer trends while strategically innovating for the future. Innovation is the means of changing one’s business models to adapt to the changes in business environment to ensure efficient products and services. To ensure success, a business strategy should have an innovation component embedded within to create creative problem solving and thinking. Nestle is continuously creating long term value by producing great ideas and changing their innovation model. In 2006 Nestle unveiled Milky bar Wowsomes, the first chocolate that’s sugar is reduced by 30% versus comparable bars. Researches at Nestle changed the structure of sugar using only natural ingredients and was able to create an aerated, porous sugar that dissolves quickly in the mouth (Nestle, 2018). Nestle had suffered from revenue declines over because of increasing health consciousness. Concerns relating to obesity have changed consumer preferences to favoured premium and healthier products over traditional chocolate and confectionery over the past five years. Many businesses fail because they don’t see or recognise the need for change however, Nestle had undergone an incremental innovation and improved their milky bar chocolates by reducing sugar to help curb childhood obesity. 4

This product adds greater choice to their products and enables parents to treat their children with a chocolate that still tastes incredible but has less sugar. Nestle is demonstrating how they will subsidise to a healthier future and that they will take the public health responsibilities very seriously (Nestle, 2018). Nestle is certain this product will inspire other companies to make healthier products and meet the government's 20% target by 2020 (Boseley, 2018). Many businesses new ventures often fail although it is important to recognise that failure is an intrinsic part of the process. Nestle had noticed the rapid shifts in marketplace and changes in consumer tastes. Nestle found it necessary to enhance their product characteristics to meet the changing needs of their customers. Nestle introduced their fourth type of natural chocolate Kit Kat Ruby making them the first ever brand to offer a new taste of chocolate. Businesses don’t generally need to design new products but modify and enhance existing ones. Nestle had a strategic advantage of delivering and selling a new flavoured chocolate no other brand has introduced yet. Nestle undergoing a strategic analysis and exploring the 4ps of innovation helped them create this product. Nestle’s incremental change helped them innovate what they already provide but better. Ruby's dazzling colour is an aftereffect of an inventive production process which opens the unmistakable flavour and colour tone normally present in the beans. Ruby chocolate exhibits Nestlé's continued commitment to create new items and to help develop its universal confectionary worldwide (Cain, 2018). Kit Kat ruby has helped boost the company’s performance introducing a product new to their line and it has successfully sold out in 10 days. Kit Kat has been inundated with requests from consumers across the country since Ruby Chocolate was introduced (Nestle, 2019). Ruby Chocolate has emphatically influenced the Australian market as they are given another flavoured chocolate rather than the usual dark, milk, white or red. This chocolate will appeal to various individuals and will draw in new customers. Overall Nestle has built a dynamic environment by introducing two products that will attract existing and new customers and are able to open new opportunities for the business. Other companies are now challenged and must reframe what they are doing.

MARKETING ANALYSIS

Nestle Australia Ltd manufactures and markets a wide variety of food and beverage products. The report primarily focuses on the company’s confectionery products within the Australian market (Ibis, 2018). Nestle’s major competitors are Mars Australia and Mondelez Australia Holdings. Mondelez Australia Holdings Pty Ltd, which was formerly known as Kraft

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Australia Holdings, engages in the marketing, manufacturing and distribution of food products across Australia and New Zealand. The company offer a range of products under 12 brands (Ibis, 2018). Mars Australia, which comes from Mars Wrigley Confectionery is the world’s leading manufacturer of chocolate, chewing gum, mints, and fruity confections. The company distributes products under 17 brands worldwide (Mars, 2019). As shown in the appendix below, the 4 P’s - Product, Price, Promotion and Place have been applied to two Nestle confectionery products, Kit kat and smarties. The elements of the marketing mix have also been applied to the competitors’ products - Mondelez cadbury dairy milk and Mars M&M’s. Both Nestle chocolates compete with existing products in the market. They’re priced to match competitor pricing and are distributed to sell globally. Nestle have used innovation to enhance their existing products and introduce new flavours into the market eg; Nestle’s Kit Kat Ruby. Businesses use perceptual maps to compare products. It helps them understand what consumers think about their products. The perceptual map included in the appendix below shows where Nestle stands in the market today, compared to its competitors, Mars and Mondelez. All three companies offer quality products at reasonably affordable prices. The swot analysis below displays the strengths, weaknesses, opportunities and threats for all three companies. The companies are known for their strong product portfolio and dominant brands, particularly their confectionary brands. They have different weaknesses, Nestle and Mars have faced serious accusations, giving Mondelez a competitive advantage. An opportunity for the brands to grow further would be to build partnerships and emerging markets. By building from their strengths and opportunities, the company can reduce, if not eliminate their future weaknesses and threats.

MICROECONOMIC ANALYSIS

Microeconomics involves factors of available resources and usage that impact consumers and businesses. As an organization operator, understanding the core microeconomic factors affecting the company helps in preparation and planning, as well as long-term business development strategies. The microeconomics business factors that affect KitKat Red ruby and Milky Bar are: Health concerns of consumers have become a major decry. The firm cannot successfully operate a for-profit company without attracting targeted customers. Understanding the ideal consumer types and developing presenting effectiveness marketing campaigns to build a

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consumer base. Also, generates revenue streams has escalated the health problem among the frequent consumer of these chocolates. Kit kat has influenced the situational choice of purchase, mainly basing on the occasions. Holidays such as Easter and Christmas have shown a boom in investment as the consumer prefers to cherish these moments with rear brands in the markets. The industrial size of KitKat has grown more especially its debut in Australia introduced Black Label Ruby. It was followed by eight pieces that comprised of dried strawberries and caramelized meringue. It lets consumers create their own Kit3Kat bars. More so, it has influenced the market through a competition where Nestle Chocolate has various rivals in the Australian market. The top competitors are Ferrero and Cadbury. Advertising for children has increased the company revenue as occasionally admires chocolates, and through the adverts, the organizations induce the urge to children. The media has often facilitated in stories proliferate on chocolate bars. The ethical behaviour concerning the Nestle Company is that it must satisfy the public. Any actions they portray are considered from the consumer’s angle and how they are affected. It believes in safety and health in doing business in all occupational illnesses, injuries, and environmental incidents. These are prevented and controlled by the implementation of the right business practices as well as providing the best and high chocolate bar to the customer (Institute, 2019). Nestle barriers of entry involve strict scrutiny with government legislation as well as heavy taxation in various nations. The higher the entries barriers are within any given firm, the smaller the threat of new entrants to that industry. Market traits such as high capital investment requirements or the heavy regulation might prevent the new business from entering the market, which in turn gives a level of protection to the existing firms. The competitive environment for Milkbar has diversified into various markets, especially in the UK and Ireland, due to the reduction of 30 percent sugar versus the comparable bars. The reduction of sugar has been achieved through natural ingredients and with no additional sweeteners. The current market structure for Nestle falls under the perfect competition. The firm's marginal profit is seen to be equal to the minimal cost. There is no economic profit. It is a price taker as it has no scope in setting the prices as a similar product defines them. Many of the sellers within low market share and are absolutely no barriers to entry or exist. Nestle is unable to differentiate its products, and their customers have high accurate information due to other cross competitors of chocolate bars (Academy, 2019).

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The current demand for the Milky bar has increased, and the demand curve will shift to the right. The quantity in demand hence, increases. Due to the reduction of the 30 percent sugar has helped in health concerns increasing requirements for chocolate bars (Campus, 2019). The nestle price elasticity of demand is a unit-free measure of the sensitiveness or responsiveness of the quality of the product or the service demanded to the change in its price when all other influences on purchasing plans remain the same (Pricing, 2019).

PROBLEM IDENTIFICATION: HEALTH CONCERNS

Research demonstrates that a major issue with the chocolate industry in the Australian marketplace is that chocolate brands often neglect nutritional value in their products, thus can potentially have a negative impact on the health and wellbeing of consumers (Hanks, Just and Wansink, 2014). Hanks, Just and Wansink (2014) support this notion by stating that students are impacted as they often purchase flavoured milk at school with chocolate being the most popular. Students are drawn toward the taste however are not taking into consideration the sugar and calorie consumption (Hanks, Just and Wansink, 2014). Traditional household chocolate brands such as Cadbury Dairy Milk and Mars M&M’s tend to emphasise flavour however neglect the health aspect of the product. It may be argued that general society perceives chocolate as an unhealthy product thus, consumers find themselves falling victim to guilty pleasure. As consumers share the common perception that chocolate is an unhealthy treat, large chocolate brands can achieve success without having to add nutritional benefits within their products. Rather, consumers are accustomed toward the notion of chocolate being an unhealthy, satisfying treat that is also found to be a stress reliever by increasing serotonin and endorphin levels in the brain (Fleck, 2018). We have found that there is a lack of understanding and promotion within the Australian marketplace that chocolate can provide numerous nutritional benefits. It isn’t the natural raw cocoa that is unhealthy but rather the other ingredients added in manufactured chocolate such as refined sugar, additives, preservatives and artificial colours (Medicine Hunter, 2019). The natural raw cocoa carries various nutritional benefits when consumed in moderation (Fleck, 2018). Of interest to scientists are the antioxidants in cocoa as they improve cardiovascular health and help the body from aging caused by free radicals (Medicine Hunter, 2019). With an everincreasing demand for healthier food products, the demand for chocolate bars with nutritional benefits is likely to increase.

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Nestle innovated their product line with the introduction of the Milky bar Wowsomes. This proved to be a step towards satisfying the interests of health-conscious consumers with the chocolate bars 30% sugar reduction (Nestle, 2018). This demonstrates that the chocolate industry in the Australian marketplace has made efforts of reducing the unhealthy aspects of the product. To further satisfy the interests of health-conscious consumers, the shift of focus needs to move to adding nutritional benefits to the chocolate bars rather than focusing on reducing how unhealthy a product is. This method will also complement consumers with growing concerns of obesity and parents who want to look after the health of their children.

THE INNOVATIVE IDEA

There are many enterprises within the Chocolate and confectionary manufacturing industry in the Australian market, and most have products that satisfy consumer needs and wants. Chocolates are the top-rated sweetened products for the Australian market, and account for a large amount of the total market share. Over the last decade, innovative chocolate creations and unique taste combinations have flooded the market, attracting new customers daily. However, with such an abundance of demand for such a product, the incidence of microeconomic issues became more prevalent. As identified above, the biggest issue facing chocolate manufacturing companies in Australia are health concerns. For Nestle in particular, health concerns such as obesity, diabetes, high levels of cholesterol and sugar intake, fats and oils, lactose intolerance and allergens have created a clear gap in the market that has yet to be filled: a chocolate bar that looks and tastes like chocolate, but removes all issues associated with the health of consumers (Medicine Hunter, 2019). As entrepreneurs, we have designed a product that will not only fill this gap but meet consumer demand and desires extensively.

The innovative idea will be a chocolate bar that has features familiar to all existing and new customers (i.e. it will look and smell just like ordinary chocolate) and will have same great taste that ordinary chocolate has. The reasoning for this is to retain the satisfaction and desire an individual receives from consuming chocolate bars and to not frighten and steer consumers away from such a beneficial product due to its peculiar appearance and weird taste. Our chocolate bar will not contain any refined sugar, additives, preservatives or artificial colours and instead will be made from only the highest quality, organic ingredients that has been scientifically tested and proven to be beneficial to an individual’s health and wellbeing (Medicine Hunter, 2019). Organic, non-refined coconut sugar (reduced fat and is beneficial for blood sugar levels), natural cocoa pods (rich in magnesium and anti-oxidants 9

to boost immunity), lucuma (high levels of iron, zinc, protein and b vitamins), and yacon roots (reduced impact on blood sugar levels, supports lower cholesterol, delivers calcium, potassium and prebiotic compounds) will be added as the primary ingredients in our chocolate bar (Fleck, 2018). Probiotics and vitamins will be added for extra health benefits, and lactose free, fresh skim milk rich with A2 proteins will be used instead of full cream as it contains less fat, more proteins and is perfect for lactose intolerant individuals. Consumers can now enjoy the pleasure of eating a delicious chocolate bar and not worry about negatively impacting their health by indulging in their ‘guilty pleasure’ (Bell, 2018).

The primary target markets we have chosen to sell our chocolate bar too will include individuals of any form of demographic who are health conscious, have allergies, face health problems, lactose intolerant, and children. Such a target group will ensure that their demands are met in the best possible way without the loss of satisfaction or pleasure. Moreover, our secondary target markets will be the public, in the hope to create a shift from conventional, unhealthy chocolate bars to our all in one chocolate bar.

MARKETING MIX: THE NESTLE CHOCA-BLOCK

The team has come up with the most appropriate marketing mix to meet the demands of our target market groups, fully considering the marketing aspects of product, price and promotion. As Nestle is a manufacturing company, the service-specific aspects of the marketing mix (people, processes and physical evidence) is invalid as it does not directly sell its products through its own stores, nor does it provide a physical service experience, but rather the products are sold through supermarkets and other stores.

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Product- The chocolate bar is the product we have created and will be our focus to ensure it satisfies our target markets and meets their needs. The product will be a consumer based, convenience focused product (specifically an impulse product) and will be differentiated from its competitors in many ways, including:  Design: The chocolate bar will vary in size to suite various tastes and occasions and will look identical to most chocolate bars but will have a finer texture and less of a messy crunch when bitten into. This is to give customers the familiar impression of eating an ordinary chocolate bar, but with all the healthy goodness of a health bar. Moreover, the wrapping will be made from environmentally friendly, bio-degradable materials to keep the environment safe (Garlin, Hayek, Edward & Daniela, 2018). 10

 Image: The Nestle brand has a strong image within the market already and incorporating such a product alongside its other products will give Choca-Block the needed attention.  Quality: As stated in the previous section, only the highest quality organic ingredients will be used to make the bars, and this is to ensure that customers receive the greatest level of satisfaction. For branding, the name of the product will be ‘The Nestle Choca-Block’, it’s slogan will be: “Choca-Block full of goodness, without the guilty pl...